Japan Auto Industry Moves to Exploit India's Huge Market

NEW DELHI, India — For decades, India's automobile industry has been caught in a time warp. Only three companies have been licensed to make cars, and protective tariffs have kept out competition and innovation.

As a result, most Indian-made passenger cars could be used as props in a 1950s movie. India's luxury car, the one used by Prime Minister Rajiv Gandhi and other VIPs, is made with 32-year-old dies and is virtually a replica of the 1950 Plymouth. It is heavy, awkward, slow and, like the other boxy anachronisms on India's highways, noisy.

"The only thing that doesn't make noise on an Indian car," a High Court judge once said in a famous ruling, "is the horn."

In recent months, however, a small, brightly colored car has appeared on the streets here, darting in and out of New Delhi's phlegmatic traffic with ease. Clearly, India will never be the same.

The newcomer is the Maruti-Suzuki, the product of collaboration between a government-supported Indian company and Japan's Suzuki Motor Co. The Japanese auto industry has finally arrived in one of the world's last large, unexploited auto markets.

As the result of a liberalization of trade and industrial policies begun several years ago by Prime Minister Indira Gandhi, India's enormous, long-protected market has begun to open up.

It has not received the attention given to China and its new open-trade policies, but in some ways the opening of the Indian market may be more significant. And if the present trend continues, it appears that Japan will be the primary beneficiary.

Unlike China, India has a middle class capable of buying expensive luxury items such as cars and electronic equipment. India's population exceeds 700 million, and if only 3% of the total is considered middle class, that makes about 21 million fairly affluent, product-starved consumers.

The potential of the vast Indian market has also been noted, quietly but enthusiastically, by Japan's competitors from the United States and Western Europe. Since the rules were loosened to allow foreign companies to enter collaborative agreements with Indian firms--foreign companies may retain a financial interest ranging from 25% to 40%--U.S., British and West German companies have signed more than 1,350 agreements to make a huge variety of products in India.

The United States is out in front, with 475 such agreements between 1981 and 1985. Japan, meanwhile, has been typically slow and careful about entering new markets. In the same four-year period, Japanese firms have entered into 214 agreements to share the technical skills needed to make a product in exchange for either a fee or a percentage of the profits.

But the number of agreements between Japanese and Indian companies has been increasing at a faster rate. And in terms of actual investments, measured in dollars, Japan leads the pack.

Trade and industrial delegations from Japan are turning up here much more frequently. And last May, Japan's prime minister, Yasuhiro Nakasone, visited India, the first Japanese prime minister to do so in 23 years. In January, he referred to the new relationship with India in his annual state-of-the-union address to the Japanese parliament.

The intensity of Japan's recent interest in India has caused many here to speculate that the country will soon be the leader in most key foreign-aided spheres of the Indian economy. The recent jump into the auto industry is the key to the Japanese business push. In addition to Suzuki, other Japanese car and cycle companies with cooperative agreements include Toyota, Nissan, Isuzu, Mitsubishi, Yamaha, Honda and Mazda.

D. H. Pai Panandiker, secretary general of the Federation of Indian Chambers of Commerce, said: "The Japanese are moving in with technology and capital. Already they have monopolized the automobile industry. I foresee their next jump will be into electronics."

Since it began trading with India in the late 19th Century, Japan has had friendly relations with the Indian people. The Japanese victory over the Russians in the war of 1904-8, the first example of an Asian country defeating a European power, was a big boost to the Indian independence movement.

Before World War II, the Japanese harbored many Indian fugitives from the British in the independence struggle, including the Calcutta revolutionary Subhas Chandra Bose. During the war, Bose raised the Indian National Army to fight alongside the Japanese against the British. After the war, India alone among the Allies argued against Japanese reparations, and it was the first country to sign a peace treaty with the new Japanese government. Moreover, India is revered by the Japanese as the birthplace of Buddhism, one of Japan's two major religions.

Despite their generally amicable relations, India and Japan drifted apart commercially, partly because of Japan's close alliance with the United States.

"Our position was nonalignment; Japan was aligned," V. P. Dut, a professor and foreign policy scholar at Delhi University, said recently.